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Buying Property in the UK


The UK is Europe's third most populous country and still a world economic leader. The country boasts a rich history and, despite high immigration figures, most parts of the UK cling onto a strict sense of their own particular cultural identity. The United Kingdom abounds with monuments, interesting architecture, museums, traditional pubs, tea rooms and world-class theatre, cinema and music, making it a year-round destination for visitors from all corners of the globe.

It also hosts the world’s largest population of Australians and New Zealanders outside of their home country - so there is a rich Antipodean culture and history, particularly in London. For that reason, and family connections, Australians own more property in the UK than in any other country in the world. Brexit has clouded inward investment into the country in recent years but this was to a degree receding even before the Covid 19 pandemic interceded and the property market accelerated, although it is slowing sharply in the early part of 2023 on the back of significant interest rate increases.

Please note that for the time being we have placed a hold on UK mortgage introductions - sharply rising interest rates in the UK have made it increasingly difficult to arrange "buy to let" loans, the only finance typically available to non-residents. We can still provide access to general advice regarding UK property investments, including tax advice, but not to mortgage finance at this stage.

Buying from Overseas

For individuals resident outside the UK, arranging finance for property purchases can be characterised as, "difficult but not impossible." The major impediment has been that many, but not all, UK domestic banks simply refuse to lend to Australian residents - even British citizens in Australia. Also, with Australian tax rules treating offshore properties in much the same fashion as Australian domestic investment properties - as long as you meet the same qualifying criteria - it can be more tax effective to use finance if the property is going to be rented for any period.

The UK property market is well developed, has a broad range of property options and locations, and thanks to the population and large volumes of people that rent, traditionally generates above average rental yields. Note however that non-residents are currently limited to investment ("buy to let") loans. At the present time - the second quarter of 2023 - you should think in terms of a minimum 40% deposit, whether purchasing or re-financing, and a minimum loan size of GBP150,000. The loan to valuation (LTV) ratio has recently declined because lenders are now assessing loans on the basis of very high "stress rates" of 8.5% + - reflecting the recent steep rise in mortgage rates.

If you would like us to assist in arranging finance, or any other aspect of your purchase in the UK, please complete the Inquiry form at the bottom of this page and we will respond promptly. We can also provide access to tax services that can complete both your Australian and UK tax returns - in an integrated fashion that ensures that you are fully compliant across both countries and tax effective.

Purchase Considerations

1. Tax Considerations

Non-resident Landlords (as well as UK residents) are liable to pay UK tax on any rental income, if the property is going to be rented out. The interest expense on the loan to buy the property has historically been fully deductible against this income, but from April 2020 there has been no deduction available at all. Landlords just receive 20% of finance costs as a tax credit.

If you make a loss it can be offset against other UK income or otherwise carried forward to the following year and deducted from future taxable rental income. Note that most individuals purchasing a "second home" in the UK will pay an additional 3% stamp duty surcharge - the starting valuation threshold for the surcharge is a low £40,000 and it doesn't matter that your "other home" may be located outside the UK. Additional stamp duty also applies in relation to the purchase of BTL properties.

For UK residents capital gains tax (CGT) applies to the gain arising on the sale of property above the annual exempt allowance (£12,300 in most cases - 2022/23). The rate of tax depends on your total taxable income, so that the tax applicable will either be 20% if you are a basic rate taxpayer or 40%/45% if you are a higher or additional rate taxpayer.

It's useful to know that when an investment property is owned jointly, and then sold, then both parties will receive the benefit of the current exempt allowance of £12,300 thus reducing the taxable capital gains by £24,600.

For residents planning to leave the UK, you should note that from April 2015 the UK introduced a capital gains tax in respect of non-residents - so you will typically be liable for CGT on any capital gain from that point in time and there are very stringent reporting obligations.

Australian residents who own UK property will need to complete tax returns in both Australia and the UK. The net property profit, calculated according to UK rules, will be included and taxed in the UK return. The Australian return will also need to include the net property profit, but this time calculated according to Australian rules. To prevent double taxation, relief for the UK tax can be claimed in your Australian return in the form of a Foreign Income Tax Offset (FITO). You also need to deal with the complications arising from the fact that the UK and Australia have different tax years and the need to translate the UK income and expenses into dollars.

2. Legal Considerations

Transferring ownership of UK property between spouses is capital gains tax free and it may also be stamp duty free (as a gift). Otherwise, you will pay property stamp duty upon purchase; the exact percentages can range anywhere from 0% to 12% of the purchase price. The 12% maximum currently applies to that portion of the property value above GBP1.5M pounds.

Apart from CGT, another issue to consider is the application of UK Inheritance Tax (IHT). Even though an owner may be resident outside the UK, as the property is physically situated in the UK, it could be subject to UK Inheritance Tax. The threshold level of minimum total asset value before IHT is charged is quite low at £325,000 for a single person, although a higher threshold (£500,000) applies if you leave a home to children or grandchildren. The inheritance tax rate is 40% on the value of assets transferred to beneficiaries above the threshold.

There are some property ownership strategies to consider as a non-resident that could significantly reduce or eliminate the inheritance tax but they need to be the subject of specific advice from an experienced UK/Australian expatriate tax advisor.

If you would like to make an inquiry regarding an International mortgage please complete the form below and we will respond promptly.